An audit trail is a detailed, chronological record of all the transactions in a company, including financial transactions, operational activities, and administrative tasks where accounting, project details, and other financial data are tracked and traced.
According to the Ministry of Corporate Affairs (MCA) notification dated March 24, 2021 (Companies (Accounts) Amendment Rules, 2021) for the financial year beginning on or after April 1, 2021, every company that uses accounting software to maintain its books of account shall use only Accounting Software that has a feature of recording an:
Audit Trail of each and every transaction,
Creating an edit log of each change made in books of account along with the date when such changes were made.
Ensuring that the audit trail cannot be disabled.
The MCA later had announced that the above amendments will take effect from April 1, 2023.
Thus, starting from 1st April 2023, MCA has made it mandatory for all the companies to maintain an audit trail for all their transactions. The new audit trail requirement introduced by the MCA is an essential step towards greater transparency and accountability in business operations. Maintaining a detailed record of all transactions would help to identify the source of the financial irregularities. Using these tools auditors and investigative agencies will ensure a more compliant financial reporting framework and ensure that the company complies with all relevant laws and regulations.
The audit trail must contain the following information:
Details of every transaction that takes place within the company, including the date, amount and nature of the transaction.
Details of all changes made to the books of accounts, including the date and nature of the change.
Details of all authorization for transactions and changes made to the books of accounts, including the names of the persons who authorized them.
Details of all approvals and rejections of transactions and changes made to the books of accounts, including the names of the person who approved or rejected them.
Details of all access to the books of accounts, including the date and time of access, and the name of the person who accessed them.
Details of all backup and restoration activities related to the books of accounts.
The audit trail must be maintained for at least eight years from the end of the financial year for which it pertains.
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